Execution Gains Momentum: Another Quarter Of Double-digit Growth Raising Full Year EBITDA Guidance

·19 min read

AMSTERDAM, Oct. 28, 2021 /PRNewswire/ -- VEON Ltd. (VEON) announces results for the third quarter ended 30 September 2021:

Execution Gains Momentum:  Another Quarter Of Double-digit Growth Raising Full Year EBITDA Guidance
Execution Gains Momentum: Another Quarter Of Double-digit Growth Raising Full Year EBITDA Guidance

3Q21 HIGHLIGHTS:

  • Strong year-over-year revenue performance in both reported currency (+10.2%) and local currency (+11.2%)

  • Strong acceleration in Beeline Russia's total revenue and service revenue performance, which were up 8.2% and 4.7% YoY in local currency respectively (+8.3% and +4.8% YoY reported respectively)

  • EBITDA increased strongly year-over-year in both reported currency (+8.6%) and local currency (+9.1%)

  • Equity free cash flow for the quarter of USD 308 million showing a significant improvement over prior quarters

  • 4G subscribers increased to 93.8 million, reaching penetration of 46.2%, up 10.3 p.p. YoY and 3.0 p.p. QoQ

  • JazzCash in Pakistan reached 13.9 million monthly active users, and Toffee TV in Bangladesh reached 6.3 million monthly active users.

  • FY2021 Group EBITDA guidance raised to minimum local currency growth of 8%. On Group revenues guidance, we maintain high single-digit local currency growth for the full financial year

  • Algeria has become a discontinued operation, is accounted for as an "Asset held for sale" and does not contribute to both the comparison base and the actual reported numbers

- With reported revenues up 10.2% YoY and local currency revenues growing 11.2% YoY, VEON recorded double digit growth for the second consecutive quarter in 3Q21.

- Beeline Russia continued to execute on its turnaround, as revenue growth accelerated with 3Q21 local currency revenue growth of 8.2% YoY and local currency mobile service revenue growth of 4.5%. Beeline added 0.5 million mobile customers in last quarter reaching 50.6m (+1.7% YoY).

- All of our countries posted local currency revenue growth, with double digit performance from Kazakhstan (+25.5% YoY), Georgia (+21.4% YoY), Pakistan (+13.0% YoY), Ukraine (+11.9% YoY) and Uzbekistan (+10.4% YoY).

- Group EBITDA increased by 8.6% YoY in reported terms, and 9.1% YoY in local currency. This solid result was driven primarily by robust local-currency EBITDA performance in Ukraine (+11.4% YoY) and Kazakhstan (+36.7% YoY). Russian posted a second consecutive quarter of positive EBITDA with local currency growth of 1.9%.

- Group capex stood at USD 381 million, supporting the continued expansion of our 4G customer base, which increased by 24.7 million YoY and 7.0 million QoQ. Total Group 4G users reached 93.8 million, corresponding to 4G subscriber penetration of 46.2% at quarter-end. The Group also recorded a QoQ increase in its total subscribers, which grew by 3.2 million in 3Q21 to reach 202.9 million.

- Mobile data revenue increased by 18.8% YoY in local currency (18.1% YoY reported), driven by our ongoing 4G focus. A noteworthy contribution to our data revenue growth came from Pakistan (+25.5% YoY), Kazakhstan (+40.3% YoY) and Bangladesh (+32.0% YoY).

- JazzCash closed the quarter with 13.9 million monthly active users (+43.6% YoY), Toffee TV in Bangladesh reached 6.3 million monthly active users from 1.8 million a year ago; and Beeline TV in Russia hit 3.1 million monthly active users (+16.7% YoY) in 3Q21.

- We remain focused on active portfolio management and the pursuit of opportunities to realize the value of our infrastructure portfolio. On 6 September 2021, VEON announced that it had reached an agreement to sell its mobile network towers in Russia to Service-Telecom Group of Companies LLC for a total consideration of RUB 70.65 billion (USD 970 million equivalent), subject to customary regulatory approvals.

- Group net debt of USD 8.2bn (of which lease liabilities were USD 1.8bn) at the end of 3Q resulted in a net debt/EBITDA ratio of around 2.5x. These figures reflect cash capex of approximately USD 347mn in the quarter. The Group's cost of debt (excluding leases) in 3Q21 increased to 6.3% from 6.1% in 3Q20, while debt maturity (excluding leases) increased to 3.2 years, from 2.8 years in 3Q20.

KEY RECENT DEVELOPMENTS

  • 17 August 2021, Michael Schulz joined VEON as Group Chief People Officer

  • 6 September 2021, VEON announced the sale of its Russian tower assets for USD 970 million

  • 9 September 2021, VEON announced the pricing of its 5-year RUB 20 billion 8.125% notes issued under its GMTN programme

  • 21 October 2021, VEON announced that its Group General Counsel Scott Dresser will be leaving the Company effective 31 December 2021

  • 26 October 2021, VEON published its integrated report for 2020

Kaan Terzioğlu commented on 3Q21 results:

"Our successful execution along VEON's 3 strategic pillars - infrastructure, digital operator transformation and Ventures - is moving full steam ahead and bearing fruit. With this we have now delivered five consecutive quarters of improvement in both operational and financial performance.

All of our operating companies have recorded year-over-year total revenue growth, with 5 of them reporting double-digit growth. I am particularly pleased that Beeline Russia's strong performance has continued to accelerate further in the month of September with total revenues up 8.2% and mobile service revenue growth of 4.5% making Beeline Russia a significant contributor to our Group's revenue growth.

These financial results are built on strong operational foundations as we strengthen our 4G subscriber base - now 46% of our customers. With significantly higher ARPU and lower churn, they form the fundamental building block of our present and future growth as we execute on our digital operator transformation.

Our operating companies are widening and deepening their relationship with the users of our digital services. In Q3, Toffee TV reached 6.3 million subscribers up 3.6 times YoY, JazzCash reached 13.9 million subscribers with 44.0% YoY growth and Beeline TV reached 3.1 million subscribers with 17% YoY growth.

We are making progress in crystallising the value of our infrastructure assets. The agreement that we have reached for the sale of our Russia towers is a first and an important step in our transition towards an asset-light model while maintaining our competitiveness.

As we deliver on our targets and strategy, we remain focused on the long-term financial health and sustainability of the Group. Improving cash flow trends is proof of our disciplined approach in this area. With the achievements of this quarter, we are well positioned for sustained growth and confident in the longer-term value creation for all our stakeholders."

3Q21 KEY FIGURES

  • Revenue: USD 2,005 million, +10.2% YoY on a reported basis and +11.2% YoY in local currency, with +8.2% YoY revenue growth in Russia, +13.0% in Pakistan, +11.9% in Ukraine, +25.5% in Kazakhstan and +7.2% in Bangladesh

  • EBITDA: USD 889 million, +8.6% YoY on a reported basis and +9.1% YoY in local currency, driven by EBITDA growth in Russia (+1.9% YoY) and double-digit EBITDA growth in Ukraine (+11.4% YoY) and Kazakhstan (+36.7% YoY)

  • Operational capex: USD 381 million in 3Q21, with a rolling 12-month capex intensity of 25.2% reflecting our continued focus on our 4G roll-out, and healthy linearity driven by good investment planning

  • Capital structure: Group leverage of 2.5x (net debt/EBITDA), including lease liabilities; total cash and undrawn committed credit lines of USD 3.0 billion; average cost of debt (excluding leases) of 6.3% and average debt (excluding leases) maturity at 3.2 years

  • Net income for the period: USD 195 million, material YoY improvement compared to USD 645 million loss in 3Q20 (Net income includes the contribution from discontinued operations)

USD million

3Q21

3Q20

YoY
reported

YoY
local currency

9M21

9M20

YoY
reported

YoY
local currency

Total Revenue, of which

2,005

1,820

10.2%

11.2%

5,736

5,463

5.0%

9.7%

mobile and fixed service revenue

1,825

1,683

8.4%

9.4%

5,283

5,113

3.3%

8.0%

of which mobile data revenue

685

580

18.1%

18.8%

1,964

1,732

13.4%

18.2%

EBITDA

889

819

8.6%

9.1%

2,505

2,403

4.2%

8.7%

EBITDA margin (EBITDA /total revenue)

44.4%

45.0%

(0.6p.p.)

(0.8p.p.)

43.7%

44.0%

(0.3p.p.)

(0.4p.p.)

Net income/(loss) for the period

195

(645)

n.m.


460

(350)

n.m.


Net income/(loss) for the period
attr. to VEON shareholders

145

(620)

n.m.


375

(357)

n.m.


Operational Capex

381

328

16.0%


1,260

1,150

9.5%


LTM Operational Capex / LTM Revenue

25.2%

24.5%

0.6p.p.






Equity Free Cash Flow

308

239

29.2%


320

300

6.5%


Net Debt, excluding banking operations in Pakistan

8,154

7,607

7.2%






Net Debt / LTM EBITDA

2.5

2.5







Total mobile customers (millions)

202.9

192.3

5.5%






4G smartphone users (millions)

104.0

84.5

23.1%






4G smartphone penetration, %

51.3%

44.0%

7.3p.p.






4G users (millions)

93.8

69.1

35.8%






4G customer base penetration, %

46.2%

35.9%

10.3p.p.






4G coverage, %

78.3%

69.2%

9.1p.p.






Fixed-line broadband customers (millions)

4.6

4.4

4.4%







Note: in the above table YoY local currency was calculated excluding Armenia from 3Q20 and 9M20 results. The Algerian operations do not contribute to both the comparison base and the actual reported numbers, other than in net income (for further discussion of adjustments made for one-off and non-recurring items, see "Non-recurring items that affect year-on-year comparisons." on page 4).

CONTENTS

KEY RECENT DEVELOPMENTS............................................................................................ 5

GROUP PERFORMANCE....................................................................................................... 6

COUNTRY PERFORMANCES................................................................................................ 9

CONFERENCE CALL INFORMATION.................................................................................. 15

attachments............................................................................................................................ 17


PRESENTATION OF FINANCIAL RESULTS

VEON's results presented in this earnings release are, unless otherwise stated, based on IFRS and have not been audited.

Certain amounts and percentages that appear in this earnings release have been subject to rounding adjustments. As a result, certain numerical figures shown as totals, including those in the tables, may not be an exact arithmetic aggregation of the figures that precede or follow them.

All comparisons are on a year-on-year (YoY) basis unless otherwise stated.

The non-IFRS information- disclosed in the document, including among others, EBITDA, EBITDA margin, net debt, equity free cash flow, operational capex, capex intensity, local currency trends, and ARPU is defined in Attachment A.

The non-IFRS information disclosed in the document, such as EBITDA, net debt, equity free cash flow, operational capex, local currency YoY change, is reconciled to the comparable IFRS information in Attachment C.

NON-RECURRING ITEMS THAT AFFECT YEAR-ON-YEAR COMPARISONS FOR REVENUE AND EBITDA

On 29 October 2020, VEON announced the sale of CJSC "VEON Armenia", VEON's operating subsidiary in Armenia. Armenia results were deconsolidated from VEON Group numbers starting from 4Q20.

Local currency year-on-year trends for 3Q21 and 9M21 disclosed in this earnings release exclude both the impact of foreign currency movements (see full definition in Attachment A) and the non-recurring item – the sale of operations in Armenia.

Following the exercise of the put option for our stake in Algeria on 1 July 2021, the Algerian business has, in line with the IFRS 5 requirements, become a discontinued operation, and accounted for as "Asset held for sale". The result is that the Algerian operations do not contribute to both the comparison base and the actual reported numbers of VEON, without any change in the net economic value of this business.

KEY RECENT DEVELOPMENTS

VEON announced the appointment of Group Chief People Officer

On 17 August 2021, VEON announced the appointment of Michael Schulz as VEON Group Chief People Officer. Michael joins VEON's Group Executive Committee and has been appointed to the Board of Directors of a number of the Group's operating companies.

VEON announced the sale of its Russia tower assets for USD 970 million

On 6 September 2021, VEON announced that it has reached an agreement to sell its mobile network towers in Russia to Service-Telecom for a total consideration of RUB 70.65 billion (USD 970 million equivalent). The sale reflects VEON's continued focus on active portfolio management and the pursuit of opportunities to realize the value of its infrastructure portfolio.

VEON announced the pricing of its ruble-denominated notes offering

On 9 September 2021, VEON announced the pricing of its 5-year RUB 20 billion (approximately USD 273 million) 8.125% notes issued under its Global Medium Term Note programme. This represents the third Russian ruble denominated bond offering under the programme.

VEON announced that Scott Dresser will depart VEON

On 21 October 2021, VEON announced that long serving General Counsel, Scott Dresser, will be leaving the company effective 31 December 2021. Mr. Dresser will continue as a strategic advisor to the Chairman of the Board.

New executive compensation scheme

As mentioned in our integrated report, our new executive compensation scheme ensures total alignment between management and shareholders. It introduces an annual rolling stock-based long-term incentive based on total shareholder return, as well as a deferred equity component in annual performance bonus. This combines global standards for vesting with share ownership requirements, and aims to attract and retain the best talent in a competitive market.

In 3Q21, Yaroslav Glazunov, a member of our Board, Kaan Terzioglu, our Group Chief Executive Officer and Erik Aas, the Chief Executive Officer of Banglalink, each purchased 68,500, 100,000 and 100,000 of our ADSs, respectively. As of 31 September 2021, Mr. Glazunov, Mr. Terzioglu and Mr. Aas, each owned 68,500, 700,000 and 200,000 of our ADSs, respectively.

GROUP PERFORMANCE

Following the exercise of the put option for our stake in Algeria on 1st July 2021, the Algerian business has, in line with the IFRS 5 requirements, become a discontinued operation, and accounted for as an "Asset held for sale". The result is that the Algerian operations do not contribute to both the comparison base and the actual reported numbers of VEON, without any change in the net economic value of this business.

In 3Q21, VEON reported strong operational and financial results with improving cash flow across the Group. Group revenue increased by 11.2% in local currency terms bringing the YTD revenue performance to +9.7%, which is at the higher end of our revenue guidance. Encouragingly, all countries delivered YoY growth in local currency revenue. The strong growth in data revenue, up 18.8% in local currency terms was a key driver of our revenue performance. Reported revenue increased 10.2% YoY.

Further revenue acceleration in Russia (+8.2% YoY) was an important contributor to the Group revenue performance. This growth in total revenue is the result of the combination of mobile service revenue growth (+4.5% YoY), fixed line service revenue growth (+6.2% YoY) and device sales (+38% YoY).

Group EBITDA increased 9.1% in local currency terms. We reported positive local currency EBITDA performance across all markets other than Pakistan, where the normalised EBITDA growth was 24.6% after adjusting for the one-off impact of the reversal of a provision USD 52.0 million (PKR 8.6 billion) in 3Q20. In 3Q20, we made a USD 14.6 million (UZS 155 billion) tax provision in Uzbekistan. After normalising for this, Uzbekistan's EBITDA grew by 31.2% YoY. In Kazakhstan, we recorded a USD 6.0m (KZT 2.7 billion) gain in 3Q21 related to a government grant for radio frequency taxes. Normalising for this gain, Kazakhstan's EBITDA grew 26.7% YoY. Normalising for these one-offs group EBITDA increased 13.6 % YoY. Russian EBITDA increased 1.9% YoY recording the second consecutive quarter of growth.

The Group continued to focus on investing in the expansion and quality of the customer experience on our 4G networks. This supported the growth in our 4G subscriber base which has reached 93.8 million an additional 24.7 million users. 4G subscribers now account for 46.2% of our total subscriber base, up 10pp from the prior year.

Our financial service business JazzCash ended the quarter with 13.9 million monthly active users, a rise of 43.6% YoY. Toffee TV reached 6.3 million monthly active users (3.6 times YoY) in 3Q21 and Beeline TV in Russia recorded 3.1 million users with 16.7% YoY growth. Our digital operator in Kazakhstan, Izi, ended the quarter with almost 70,000 monthly active users, a rise of 176% YoY.

Continued investment in our digital capabilities and services remain a key strategic focus and helped us grow our digital users significantly. Group capex rose by 16.0% YoY to USD 381 million with capex intensity of 25.2%.

Reflecting the further progress in financial performance, we have increased Group guidance for FY 2021 in relation to local currency performance for EBITDA. We now forecast minimum growth in local currency EBITDA of 8% and high single-digit growth in local currency terms in revenue for the full financial year, versus our previous local currency guidance of high single-digit growth for revenue and mid to high single-digit growth for EBITDA. Our capex guidance remains unchanged, with capex intensity of 22%-24%.

In 3Q21 we saw healthy growth in our subscriber base of 5.5% YoY while we continued to face varying degrees of Covid-related restrictions across our operations. Roaming revenues and migrant workforce related revenues remain well below pre-covid levels, and we remain cautious on the pandemic related risks.

INCOME STATEMENT & CAPITAL EXPENDITURE










USD million

3Q21

3Q20

YoY
reported

YoY
local currency

9M21

9M20

YoY
reported

YoY
local currency

Total revenue

2,005

1,820

10.2%

11.2%

5,736

5,463

5.0%

9.7%

Service revenue

1,825

1,683

8.4%

9.4%

5,283

5,113

3.3%

8.0%

EBITDA

889

819

8.6%

9.1%

2,505

2,403

4.2%

8.7%

EBITDA margin

44.4%

45.0%

(0.6p.p.)

(0.8p.p.)

43.7%

44.0%

(0.3p.p.)

(0.4p.p.)

Depreciation, amortization, impairments and other

(477)

(1,221)

61.0%


(1,378)

(2,127)

35.2%


EBIT (Operating Profit)

413

(402)

n.m.


1,127

275

n.m.


Financial income / (expenses)

(182)

(169)

(7.4%)


(497)

(540)

7.9%


Net foreign exchange (loss) / gain and others

(10)

7

n.m.


1

(11)

n.m.


Other non operating gains / (losses)

17

(1)

n.m.


24

101

(76.2%)


Profit before tax

238

(565)

n.m.


655

(175)

n.m.


Income tax expense

(111)

(103)

(8.5%)


(284)

(234)

(21.3%)


Profit / (Loss) from discontinued operations

68

23

n.m.


88

59

50.7%


Profit / (Loss) for the period

195

(645)

n.m.


460

(350)

n.m.


Of which Profit / (Loss) attributable to non-controlling interest

50

(24)

n.m.


85

6

n.m.


Of which Profit / (Loss) attributable to VEON shareholders

145

(620)

n.m.


375

(357)

n.m.





3Q21

3Q20

YoY
reported


9M21

9M20

YoY
reported


Operational capex

381

328

16.0%


1,260

1,150

9.5%


Capex intensity (LTM Operational capex/revenue)

25.2%

24.5%

0.6p.p.








Note: in the above table, YoY local currency was calculated excluding Armenia from 3Q20 and 9M20 results. The Algerian operations do not contribute to both the comparison base and the actual reported numbers, other than in net income (for further discussion of adjustments made for one-off and non-recurring items, see "Non-recurring items that affect year-on-year comparisons." on page 4).

For discussion on EBITDA performance please refer to the "Group performance" section.

Depreciation, amortization, impairments and other decreased by 61.0% YoY to USD 477 million due to the USD 790 million goodwill impairment charge in the prior year. Adjusting for this impairment, the line item increased by 10.6% on a YoY basis with higher depreciation following increased network investment.

Financial expenses increased YoY from USD 169 million in 3Q20 to USD 182 million in 3Q21 as a result of our financing activities over the last twelve months. We have seen a marginal increase in our cost of debt, a 20bps YoY impact due to the increase in the cost of our non-USD denominated funding.

Income tax expenses increased by 8.5% YoY to USD 111 million, mainly due to increase in the tax rate on dividends between Ukraine and the Netherlands (as a result of the updated double tax treaty between the two countries).

The Group recorded net income for the period of USD 195 million, an increase YoY from negative USD 645 million in 3Q20. While this improvement in net income was supported by the improved operational performance, the YoY trend primarily results from the impairment loss that was booked in 3Q20.

Operational capex was USD 381 million in 3Q21, a 16% increase from the USD 328 million recorded in 3Q20, mainly due to VEON's focus on further 4G network roll-out and modernization.

FINANCIAL POSITION & CASH FLOW








USD million

3Q21

2Q21

QoQ

4Q20

YTD


Total assets

15,022

14,753

1.8%

14,551

3.2%


Total equity

1,277

1,227

4.1%

1,013

26.1%


Equity attributable to equity owners of the parent

380

402

(5.5%)

163

n.m.


Non-controlling interests

897

825

8.8%

850

5.6%


Gross debt of which

9,551

9,703

(1.6%)

9,582

(0.3%)


Bonds and loans

7,691

7,645

0.6%

7,669

0.3%


Cash pooling

30

13

n.m.

9

n.m.


Lease Liabilities - principal

1,829

2,045

(10.5%)

1,905

(4.0%)


Net debt, excluding banking operations in Pakistan

8,154

8,634

(5.6%)

8,075

1.0%


Net debt/LTM EBITDA

2.5

2.7


2.5










USD million

3Q21

3Q20

YoY

9M21

9M20

YoY

Net cash from/(used in) operating activities

803

775

28

2,002

1,875

127

Net cash from/(used in) investing activities

(355)

(386)

31

(1,414)

(1,410)

(4)

Net cash from/(used in) financing activities

(50)

(613)

563

(597)

(694)

97


Note: Certain comparative amounts have been reclassified to conform to the current period presentation, cashflow numbers include the impact of the Algerian business

Total Equity increased by USD 50 million in 3Q21, after the impact of the acquisition in 3Q21 of the outstanding 20% in Georgia from the minority shareholder for a total consideration of USD 6.5 million, resulting in a negative charge to equity of USD 73 million.

Gross debt decreased to USD 9,551 million in 3Q21 compared to USD 9,703 million in 2Q21 due to a decrease in leases that was offset by an increase in bank loans and bonds of USD 63 million mainly due to increased borrowings by Kyivstar.

On 9 September 2021, VEON announced the pricing of its 5-year RUB 20 billion (approximately USD 273 million) 8.125% notes issued under its Global Medium Term Note programme. This represents the third Russian ruble-denominated bond offering under the programme.

Any cash inflows from tower transactions and the sale of Algeria will be used to reduce group debt.

Net debt, excluding banking operations in Pakistan decreased QoQ to USD 8,154 million mostly due to a decrease in leases and an increase in cash and cash equivalents.

COUNTRY PERFORMANCE

  • Russia

  • Ukraine

  • Pakistan

  • Kazakhstan

  • Bangladesh and Uzbekistan

Key figures by countries










USD million

3Q21

3Q20

YoY
reported

YoY
local currency

9M21

9M20

YoY
reported

YoY
local currency

Total revenue

2,005

1,820

10.2%

11.2%

5,736

5,463

5.0%

9.7%










Russia

1,025

946

8.3%

8.2%

2,883

2,874

0.3%

5.3%

Ukraine

270

236

14.8%

11.9%

772

696

10.9%

14.9%

Pakistan

349

303

15.1%

13.0%

1,067

908

17.5%

15.3%

Kazakhstan

150

122

23.2%

25.5%

415

351

18.5%

23.2%

Bangladesh

145

136

7.0%

7.2%

420

403

4.2%

4.1%

Uzbekistan

51

48

6.1%

10.4%

143

151

(5.0%)

1.2%

Other

22

37

(40.3%)

(37.5%)

60

105

(43.4%)

(38.2%)

HQ and Eliminations

(8)

(8)

1.2%


(24)

(25)

2.2%











Service revenue

1,825

1,683

8.4%

9.4%

5,283

5,113

3.3%

8.0%










Russia

884

843

4.8%

4.7%

2,544

2,615

(2.7%)

2.1%

Ukraine

269

234

14.7%

11.9%

768

693

10.9%

14.9%

Pakistan

320

278

15.0%

12.9%

978

837

16.8%

14.6%

Kazakhstan

145

120

21.0%

23.2%

403

346

16.4%

21.0%

Bangladesh

143

133

7.1%

7.3%

412

396

4.2%

4.1%

Uzbekistan

51

48

6.3%

10.5%

143

150

(4.8%)

1.4%

Other

22

35

(37.6%)

(34.7%)

59

101

(41.5%)

(36.1%)

HQ and Eliminations

(8)

(8)

(1.8%)


(24)

(25)

0.6%











EBITDA

889

819

8.6%

9.1%

2,505

2,403

4.2%

8.7%










Russia

384

377

2.0%

1.9%

1,100

1,161

(5.3%)

(0.3%)

Ukraine

183

160

14.3%

11.4%

523

472

10.6%

14.6%

Pakistan

173

188

(8.2%)

(9.7%)

490

468

4.7%

2.6%

Kazakhstan

...

86

64

34.2%

36.7%

224

188

19.1%

23.9%

Bangladesh

62

60

3.4%

3.6%

174

173

0.5%

...

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